Summer has arrived, and states are beginning to implement policy changes that were enacted during this year’s legislative session (or that have delayed effective dates or are being phased in over time). Generally, most state individual and corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. changes take effect on January 1, the beginning of the calendar year, for consistency through the taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. year. However, some important tax policy changes take effect on July 1, which is the beginning of the fiscal year for all states except Alabama, Michigan, New York, and Texas.
Among the state tax changes that most commonly take effect on July 1 are excise and sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. changes, though states made notable changes elsewhere as well, such as Washington’s implementation of a new estate taxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. rate schedule with a top rate of 35 percent.
This summer, individuals and businesses will see an especially long list of excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. changes across the states, including statutory gas taxA gas tax is commonly used to describe the variety of taxes levied on gasoline at both the federal and state levels, to provide funds for highway repair and maintenance, as well as for other government infrastructure projects. These taxes are levied in a few ways, including per-gallon excise taxes, excise taxes imposed on wholesalers, and general sales taxes that apply to the purchase of gasoline. increases and inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. adjustments, new or increased fees on electric vehicles (EVs), increased taxes on tobacco, vapor products, and cannabis, increased taxes on sports gaming, and more. Additionally, several states are beginning to implement their extended producer responsibility (EPR) programs to encourage producers to be responsible, either financially or operationally, for the end-life of their products. New fees typically accompany these programs.
In addition to excise tax changes, numerous sales tax changes will also take effect this July. Of particular note are new or expanded sales tax exemptions for data centers, reflecting efforts to attract growing artificial intelligence (AI) and quantum computing businesses and activities. Several states are also exempting sales of bullion from various taxes, including sales taxes and capital gains taxes, although these new exemptions have various effective dates.
These and other tax changes taking effect on July 1, 2025, are detailed below. Importantly, this list is not exhaustive, and it does not capture changes to certain credits, exemptions, definitions, administrative procedures, calculations, interest rates, or provisions that are relatively minor or that only affect a small share of taxpayers. Rather, this report focuses on structural changes, including rate and threshold adjustments, the implementation of new taxes, and other changes in the tax bases of major statewide taxes.
Also mentioned in this piece are major tax policy changes that have been enacted so far this year that are retroactively effective, as well as noteworthy changes enacted this year that take effect after July 1, 2025, but before January 1, 2026. For example, several states recently enacted significant individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. changes, including rate reductions, that are retroactively effective as of January 1, 2025, while Maryland adopted significant tax increases, also retroactive. Meanwhile, Washington adopted several notable new taxes and tax provisions—such as higher gross receipts taxes and a significant expansion of the sales tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. to capture additional business-to-business services, including digital advertising—that will go into effect in the fall, while establishing a graduated rate capital gains taxA capital gains tax is levied on the profit made from selling an asset and is often in addition to corporate income taxes, frequently resulting in double taxation. These taxes create a bias against saving, leading to a lower level of national income by encouraging present consumption over investment. retroactive to January 1.
As numerous states are still in the process of finalizing their budgets for the upcoming fiscal year, more tax changes are expected in the coming days and weeks that are not reflected here, as those legislative changes were not yet finalized as of this writing. Likewise, tax changes that require future voter approval are not reflected here.
Summary of State Tax Changes Taking Effect July 1, 2025
Excise tax changes represent the vast majority of the major state tax changes taking effect on July 1, 2025. Within the excise tax category, transportation tax changes are the most common. At least a dozen states will see changes to their gasoline and/or diesel tax rates on July 1, including statutory changes to tax rates as well as inflation adjustments and adjustments tied to changes in the average wholesale price (AWP) of fuel. Beyond changes to fuel tax rates, numerous states will increase fees on electric vehicles. Colorado and Hawaii, two of the states that have vehicle miles traveled (VMT) tax pilot programs in place, will make adjustments to their charges/fees, with Colorado increasing its Road Usage Fee (RUF) and Hawaii imposing a new Road Usage Charge (RUC) on EVs.
Several states are also increasing various “sin” taxes. Cannabis taxes will increase in California, Maryland, Minnesota, and New Mexico; tobacco taxes will increase in California, Illinois, Indiana, and North Carolina; and various nicotine taxes will increase in Illinois, Indiana, and North Carolina. Also notable are the changes to sports betting tax structures that will occur in several states, as well as the implementation of several states’ EPR programs that are each at varying phases.
On the sales tax front, several states will implement changes to their sales tax bases on July 1.
Arkansas will expand eligibility for its data center sales tax exemption, while Kansas will implement a new sales tax exemption for data centers. Meanwhile, Minnesota will go in the opposite direction and end its sales tax exemption for data centers.
Additionally, Maryland will newly apply a 3 percent sales tax to select business-to-business services, including data and informational technology (IT) services.
Also notable is Mississippi’s reduction in its state sales tax rate on groceries.
Further, Utah will join a growing number of states in repealing its 200 transactions threshold from its definition of economic nexus for remote sales tax collection purposes.
Individual and corporate income tax changes much more commonly take effect at the beginning of the calendar year rather than the beginning of the fiscal year. However, one notable income tax change occurring this July is the expiration of Alabama’s individual income tax exemption on overtime pay. Additionally, a law in Kansas to phase in reductions to its individual and corporate income taxes takes effect on July 1, but the earliest Kansans could see reductions to their individual income tax rates under this law would be January 1, 2026.
Most property tax changes take effect at the beginning of a new calendar rather than the beginning of a new fiscal year. However, Kansas will discontinue its collection of various state property tax levies as of July 1, 2025, and Washington’s estate tax will be made more progressive on that same date.
Notable State Tax Changes Taking Effect July 1, 2025
Alabama Tax Changes Effective July 1, 2025
Alabama will increase its state excise taxes on gasoline and undyed diesel by 1 cent per gallon (cpg), in accordance with the Rebuild Alabama Act, which allows annual adjustments to the tax based on changes in the cost of highway construction projects. Effective July 1, 2025, the state will collect a tax of 30 cpg on gasoline and 31 cpg on undyed diesel to support transportation infrastructure projects.
Additionally, Alabama's individual income tax exemption for overtime pay will expire on June 30, meaning overtime wages will again be subject to Alabama’s income tax.
Arkansas Tax Changes Effective July 1, 2025
House Bill 1444, signed into law in April 2025, will expand eligibility for the state's sales and use tax exemption for data centers. This law reduces from $500 million to $100 million the investment requirement for data centers to qualify for this exemption and allows indirect compensation paid by contractors to count toward meeting the $1 million annual compensation requirement.
Additionally, S.B. 219, enacted in March 2025, repealed the sunset provision previously applicable to the state’s special privilege tax on medical marijuana, which was set to expire July 1. As such, Arkansas will continue levying a special privilege tax of 4 percent on gross receipts from sales of medical marijuana.
California Tax Changes Effective July 1, 2025
California’s cannabis excise tax rate will increase from 15 percent to 19 percent as a result of A.B. 195, enacted in June 2022. Additionally, the tax rate on tobacco products other than cigarettes will increase to 54.27 percent of the wholesale price as a result of previously enacted laws. The increase will apply to products like e-cigarettes, chewing tobacco, snuff, and cigars, but not to cigarettes.
On July 1, California’s gas tax rates will be adjusted, with prepayment rates decreasing from 8 to 7.5 cpg for gasoline and from 44.5 to 38.5 cpg for diesel. However, the state excise tax will increase from 59.6 to 61.2 cpg for gasoline and from 45.4 to 46.6 cpg for diesel. Oil Spill Response, Prevention, and Administration fees will also be adjusted for inflation, increasing from 9.4 to 9.6 cents per barrel.
Connecticut Tax Changes Effective July 1, 2025
On July 1, Connecticut’s excise tax on diesel fuel will decrease from 52.4 to 48.9 cpg due to changes in the average wholesale price of fuel.
Colorado Tax Changes Effective July 1, 2025
House Bill 25-1296, enacted in May 2025, expands the sales tax base to include interstate telephone and telegraph services billed to Colorado addresses, reversing the current exemption for these services. The same law also creates a new sales tax exemption for sales of medical marijuana to lower-income individuals who present a valid electronic benefits transfer (EBT) card.
Additionally, Colorado’s retail delivery fee will decrease from 29 to 28 cents due to changes in the six rates that comprise the total retail delivery fee.
Colorado will also adjust its taxation of sports gaming. Specifically, the allowable portion of free bets that may be deducted from net sports betting proceeds will be reduced from 2.25 percent to 2 percent. Colorado will also allow counties to levy lodging tax rates of up to 5 percent, an increase from the current 2 percent limit. This change is the result of HB25-1247, enacted in May 2025. Finally, Colorado’s road usage fee will increase.
Georgia Tax Changes Effective July 1, 2025
Georgia’s alternative fuel vehicle fees will see inflation adjustments on July 1.
Hawaii Tax Changes Effective July 1, 2025
Hawaii’s Road Usage Charge (RUC) for EVs will begin on July 1. The rate begins at 0.8 cents per mile (or $8 for every 1,000 miles) and is capped at $50. Alternatively, drivers have the option to pay a flat RUC amount of $50 when they renew their vehicle registration.
Illinois Tax Changes Effective July 1, 2025
Illinois’ FY 2026 budget was signed into law in June 2025. House Bill 2755, the tax and revenue portion of the budget, includes numerous tax increases. As of July 1, the budget will impose increased taxes on sports wagering licensees, with a tax of 25 cents per wager applied to the first 20 million wagers in a year and a tax of 50 cents per wager applied to additional wagers in a year once the 20 million threshold has been met.
Additionally, starting in July, this law will increase the excise tax rate on e-cigarettes from 15 to 45 percent of the wholesale price, and the tax on moist snuff will increase from 30 cents per ounce to 45 percent of the wholesale price. Additionally, the law will expand the definition of taxable “tobacco products” to include certain nicotine products, including nicotine pouches, lozenges, and gum (except for FDA-approved smoking cessation or replacement products).
This law will also expand the Hotel Operators’ Occupation Tax to apply to short-term rentals and increase the interstate and intrastate telecommunications tax rate from 7 to 8.65 percent to fund the 9-8-8 Suicide and Crisis Lifeline. It also reduces the rebate for purchases of new or used electric vehicles from $4,000 to $2,000 and reduces the rebate for purchases of electric motorcycles from $2,000 to $1,500.
Separately, starting July 1, Illinois’ fuel taxes will see a modest increase due to an annual inflation adjustment that occurs each July. The gas tax will increase from 47 to 48.3 cpg, and the tax on diesel fuel will increase from 54.5 to 55.8 cpg.
Indiana Tax Changes Effective July 1, 2025
As part of HB 1001, enacted in May 2025, Indiana will increase excise tax rates on tobacco and vapor products. The cigarette tax will rise from 99.5 cents per pack to $2.995 per pack of 20, the tax on heavy cigarettes will triple, and the tax limit on cigars will increase from $1 to $3 per cigar. Other tobacco products will see their wholesale tax rate increase from 24 to 30 percent, and the tax on moist snuff and alternative nicotine products will increase from 40 to 50 cents per ounce. Vapor products will see their gross retail income tax rate double from 15 percent to 30 percent.
Additionally, House Bill 1427, enacted in May 2025, authorizes several counties to increase their innkeeper’s tax rates from 5 percent to 8 percent beginning July 1. Finally, Indiana’s motor fuel excise tax rate will be adjusted for inflation.
Iowa Tax Changes Effective July 1, 2025
Senate File 607, enacted in June 2025, reforms Iowa’s unemployment insurance (UI) tax system, effective July 1. Specifically, this law reduces the taxable wage base and lowers the maximum UI tax rate from 9 percent to 5.4 percent.
Kansas Tax Changes Effective July 1, 2025
Senate Bill 35 discontinues the state property tax levies for the Kansas educational building fund and the state institutions building fund and instead finances these expenses with revenue from the state general fund, effective July 1.
Senate Bill 269, enacted in April over the governor’s veto, creates a trigger-based system to reduce tax rates when individual and corporate income tax revenues exceed an inflation-adjusted FY 2024 baseline and the Budget Stabilization Fund balance is at least 15 percent of the prior year’s general fund tax collections. The individual income tax rate will be reduced first, until it reaches a flat rate of 4 percent, followed by reductions to the corporate income tax surtax until the normal tax and surtax reach a combined rate of 4 percent. Finally, the privilege tax will be reduced until the combined normal tax and surtax amount is 2.6 percent for banks and 2.62 percent for trusts and savings and loan associations. The first year an individual income tax cut may be triggered under this law is tax year 2026.
Senate Bill 98, which was also enacted in April, establishes a new sales tax exemption for businesses that make qualifying investments in data center projects. To be eligible, a data center must invest a minimum of $250 million over five years and create and maintain at least 20 jobs, in addition to meeting other eligibility criteria.
Kentucky Tax Changes Effective July 1, 2025
Senate Bill 1, enacted in March 2025, revamps the film production tax credit program by establishing a new Kentucky Film Office and Film Leadership Council and raising the annual credit cap to $75 million. The enhanced Kentucky Entertainment Incentive Program offers refundable tax credits of up to 35 percent of qualified expenditures for feature films, television programs, documentaries, and national touring Broadway productions filmed in Kentucky.
Additionally, Kentucky’s fuel taxes will automatically decrease by 1.4 cpg, to 25 cpg for gasoline and 22 cpg for diesel.
Maryland Tax Changes Effective July 1, 2025
A 3 percent sales tax will be applied to various business-to-business services, including data and IT services, as a result of HB 352, enacted in May 2025.
That same law also increases multiple fees and excise taxes, including raising the vehicle excise tax rate from 6 percent to 6.5 percent, the cannabis tax rate from 9 percent to 12 percent, the sports betting tax from 15 percent to 20 percent, and the vehicle emissions inspection fee from $14 to $30. Additionally, the law levies a 3.5 percent rental vehicle tax, imposes a new tire fee of $5 per tire, and extends the state’s 6 percent sales tax to vending machine sales. Additionally, Maryland’s fuel tax rates will be adjusted for inflation. Other, more significant tax changes stemming from the state budget are retroactive to January 1 and are discussed later.
Minnesota Tax Changes Effective July 1, 2025
The Minnesota Omnibus Tax Bill, HF 9, signed into law in June 2025, will increase the excise tax rate on cannabis from 10 to 15 percent, effective July 1, 2025, before legal sales begin. That law also repeals a sales tax exemption that previously existed for the purchase of electricity by qualified data centers.
Additionally, under Minnesota’s Extended Producer Responsibility (EPR) law, created by HF 3911 in 2024, producers that sell, ship, or distribute products into Minnesota that contain packaging or printed paper are required to register to participate in the program by July 1.
The Minnesota fuel excise tax will be annually adjusted according to the National Highway Construction Cost Index 2.0 beginning on January 1, 2025. The fuel tax will increase from 28.5 cents per gallon to 31.8 cents per gallon but will be capped at a 3 percent increase in subsequent years.
Minnesota’s cigarette excise tax will increase beginning January 1, 2025, from 73.9 cents per pack to 78.6 cents per pack.
Mississippi Tax Changes Effective July 1, 2025
As a part of Mississippi H.B. 1, the sales tax rate on groceries will be reduced from 7 percent to 5 percent on July 1. That same law also increases the excise tax rate on gasoline by 3 cpg each year for the next three years, raising it from 18 to 21 cpg on July 1, followed by an increase to 24 cpg in July 2026 and 27 cpg in July 2027. This is part of a broader tax package focused on income tax rate reductions, but those reductions begin next year.
Missouri Tax Changes Effective July 1, 2025
Missouri's fuel tax rate will increase by 2.5 cpg, in accordance with annual motor fuel tax adjustments put forward in SB 262, enacted in 2021.
Nebraska Tax Changes Effective July 1, 2025
Nebraska will adjust fuel tax rates from 30.4 to 31.8 cents per gallon, due to an increase in the variable tax rate despite a reduction in the average wholesale price of fuel.
New Jersey Tax Changes Effective July 1, 2025
As part of a phased repeal enacted in June 2024, the sales tax exemption for zero-emission vehicles is eliminated entirely, with all eligible vehicle purchases being taxable at the general rate of 6.625 percent as of July 1. The exemption had been partially phased out beginning October 1, 2024, when a reduced rate of 3.3125 percent was applied. Additionally, the registration fee for electric vehicles will rise from $250 to $260 as a result of AB 4011, enacted in 2024.
New Mexico Tax Changes Effective July 1, 2025
As part of a multiyear phase-in that is scheduled to bring New Mexico’s cannabis tax rate to 18 percent by July 1, 2030, New Mexico’s cannabis tax rate will automatically increase from 12 percent to 13 percent on July 1. The rates will continue to increase by 1 percent each year until reaching 18 percent in 2030.
New York Tax Changes Effective July 1, 2025
Assembly Bill A3009C, signed into law in May 2025, increases the payroll tax on large employers within the Metropolitan Transportation Authority area in order to provide additional funds for transit operations.
North Carolina Tax Changes Effective July 1, 2025
North Carolina H.B. 259, the 2023 Appropriations Act, changes the taxation of snuff from a cost-based method to a weight-based method, effective July 1, 2025. Previously taxed at 12.8 percent, snuff will instead be taxed at 40 cents per ounce. Alternative nicotine products, previously not subject to tax, will be taxed at 10 cents per container with up to 20 units, and 0.5 cents per unit for any container with over 20 units.
Additionally, North Carolina will impose a tax on for-hire ground transportation as a result of H.B. 259, enacted in October 2023. The state will levy a tax of 1 percent for a shared ride service and 1.5 percent for exclusive ride service. The tax proceeds will be directed to the North Carolina Highway Fund.
Oregon Tax Changes Effective July 1, 2025
Oregon’s EPR program, established in the Recycling Modernization Act of 2021, will begin implementation on July 1, and associated fees will begin being charged to implement changes to recycling programs in the state.
Rhode Island Tax Changes Effective July 1, 2025
An inflation adjustment will increase Rhode Island’s state excise tax on gasoline from 37 to 38 cpg.
South Dakota Tax Changes Effective July 1, 2025
HB 1028, which was enacted in February 2025 and takes effect on July 1, conforms South Dakota's bank franchise tax to the IRC as of January 1, 2025, to ensure consistency between state and federal tax regulations for financial institutions. South Dakota, with no corporate or individual income tax, imposes a franchise tax on banks and financial institutions based on their net income.
Tennessee Tax Changes Effective July 1, 2025
Senate Bill 763, enacted in May 2025, will tax vapor products at 10 percent of the wholesale price beginning July 1. Additionally, under H.B. 160, also enacted in May, sales of wine on the premises or satellite facilities of wineries or wine farms will be exempt from the 15 percent liquor-by-the-drink tax.
Utah Tax Changes Effective July 1, 2025
Senate Bill 47, enacted in March 2025, removes the 200-transaction economic nexus threshold for sales tax purposes, simplifying compliance requirements for remote sellers and aligning Utah with the trend among states to eliminate transaction thresholds. Under the revised law, businesses will need to meet the $100,000 gross revenue threshold to establish economic nexus in the state.
Additionally, H.B. 548, enacted in March 2024, established gradual increases to the beer tax rate. On July 1, the beer tax will increase from $13.35 to $13.60 per 31-gallon barrel of beer.
Vermont Tax Changes Effective July 1, 2025
House Bill 488, enacted in June 2025, delays the implementation of a mileage-based user fee program for EVs from July 1 until January 1, 2027. Additionally, H.B. 493, enacted in May 2025, extends Vermont’s telephone personal property tax by a year, repealing the tax on July 1, 2026, instead of July 1, 2025.
Virginia Tax Changes Effective July 1, 2025
Virginia’s taxes on gasoline, diesel, and alternative fuels will increase on July 1. The gas tax will increase from 30.8 to 31.7 cpg, and the diesel tax will increase from 31.8 to 32.7 cpg. The Highway Use Fee will also be automatically adjusted. Additionally, Virginia’s current sales tax exemption for sales of gold, silver, and platinum bullion and legal tender coins will end on July 1, as legislation to extend the current exemption was not enacted.
Mobile sports betting operators in Virginia will also see changes to their tax treatment as a result of H.B. 1600, the budget that was enacted in May. Specifically, operators will be prohibited from excluding bonuses or promotions from their adjusted gross revenue after they have been in operation for 12 months.
Washington Tax Changes Effective July 1, 2025
Senate Bill 5813, enacted in May 2025, increases the estate tax exemption from $2.193 million to $3 million and establishes a progressive rate structure with a top rate of 35 percent for estates exceeding $9 million, making Washington the state with the highest estate tax rate in the nation. This is dramatically higher than Hawaii’s 20 percent top rate, with which Washington was previously tied, and more than double the next-highest top rate of 16 percent, found in multiple states.
Additionally, S.B. 5801, enacted in May 2025, will increase the gas tax from 49.4 to 55.4 cpg, and the tax on special fuel will increase by $0.03 per gallon. Other significant changes to Washington’s tax code will take effect after July 1, and are discussed later in this publication.
Wyoming Tax Changes Effective July 1, 2025
House Bill 40, enacted in February 2025, clarifies that occasional or isolated sales of tangible personal property are not taxable business activities. This provides relief for individuals engaging in occasional sales, usually yard sales, garage sales, or other personal property dispositions, so that such activities do not trigger registration or compliance requirements.
Notable State Tax Changes Retroactively Effective as of January 1, 2025
Arkansas Tax Changes Retroactively Effective January 1, 2025
Arkansas increased its homestead property tax credit from $500 to $600 per parcel for years beginning on or after January 1, 2025, through Senate Bill 263, enacted in March 2025. This is the second time in two years the General Assembly has increased this tax credit, following a previous increase from $425 to $500 in June 2024.
Arkansas will also exclude student-athlete income, earned through name, image, and likeness (NIL) activities, from the state's individual income tax through H.B. 1917, signed by Gov. Sarah Huckabee Sanders (R) in April 2025, retroactively effective as of January 1, 2025. The NIL exemption makes Arkansas the first state to offer such a tax break for student-athletes.
Colorado Tax Changes Retroactively Effective January 1, 2025
Senate Bill 25-259, enacted in April 2025, repeals Colorado’s property tax reimbursement program for properties destroyed by natural disasters. Retroactively effective as of January 1, 2025, owners of real or business personal property destroyed by natural causes will no longer be reimbursed for property taxes paid on such property in the year their property was destroyed.
Georgia Tax Changes Retroactively Effective January 1, 2025
Through H.B. 111, enacted in April 2025, Georgia will reduce its flat individual and corporate income tax rates from 5.39 percent to 5.19 percent, accelerating the state's planned income tax reductions with the eventual goal of reaching flat rates of 4.99 percent. While these changes take effect July 1, the lower 5.19 percent rate is applicable as of January 1, 2025, so taxpayers will get retroactive benefits upon filing their 2025 returns. Georgia’s individual and corporate income tax rates are scheduled to decrease by an additional one-tenth of one percentage point each year until reaching the target rate of 4.99 percent.
Hawaii Tax Changes Retroactively Effective January 1, 2025
House Bill 1146, enacted in May 2024, modifies the pass-through entity tax structure of Hawaii, requiring that for tax years beginning after December 31, 2024, all qualified members claiming a credit for pass-through taxation must adjust their incomes to include the qualified member’s shares of taxes paid by an electing pass-through entity.
Idaho Tax Changes Retroactively Effective January 1, 2025
Idaho will retroactively reduce both its individual and corporate income tax rates from 5.695 to 5.3 percent, as a result of House Bill 40, which was enacted in March 2025. That same law also ends capital gains taxes on bullion.
Idaho will increase its grocery tax credit from $120 to $155 per person starting on January 1, 2025. House Bill 231, enacted in March 2025, is retroactively applicable as of January 1, 2025, meaning the credit will be available for Idahoans to claim when they file their 2025 returns next year. This law also allows Idahoans to receive a refund of taxes paid on groceries, up to $250, by itemizing grocery expenses on their tax returns.
Illinois Tax Changes Retroactively Effective January 1, 2025
House Bill 2755, the tax and revenue portion of Illinois’ FY 2026 budget that was enacted in June 2025, includes several corporate income tax changes that are retroactively effective as of January 1, 2025. Among these retroactive changes are a provision to retroactively bring 50 percent of businesses’ Global Intangible Low-Taxed Income (GILTI) into Illinois’ corporate income tax base, a provision to convert from Joyce to Finnigan rules for combined reporting, and a provision to make the Section 163(j) deduction for net business interest expenses less generous by eliminating exemptions to the addback.
Maryland Tax Changes Retroactively Effective January 1, 2025
House Bill 352, which is part of Maryland’s FY 2026 budget, adds two new brackets to Maryland’s individual income tax structure. Taxpayers will pay a rate of 6.25 percent on income exceeding $500,000 and a rate of 6.5 percent on income exceeding $1 million. The law also establishes a 2 percent capital gains surcharge for individuals with federal AGI exceeding $350,000, and it imposes a cap on itemized deductions for filers with federal AGI exceeding $200,000 ($100,000 for married individuals filing separately). The cap reduces allowable deductions by 7.5 percent of the taxpayer’s AGI over that income threshold. Additionally, the law increases the cap on local income tax rates from 3.2 to 3.3 percent. While this law includes substantial income tax increases, especially on high earners, it offers modest income tax relief targeted to low- and middle-income taxpayers by increasing the standard deduction to $3,350 for single filers and $6,700 for joint filers while eliminating the standard deduction phase-in. These changes are all retroactive to January 1, 2025.
Michigan Tax Changes Retroactively Effective January 1, 2025
Michigan will implement a new refundable research and development tax credit for tax years beginning on or after January 1, 2025, through House Bills 5100 and 5101, signed into law in January 2025. For large businesses, the credit is 3 percent of qualifying expenses to a base amount and 10 percent of expenses exceeding that amount, with rates of 3 percent and 15 percent for smaller businesses.
North Dakota Tax Changes Retroactively Effective January 1, 2025
House Bill 1176, enacted in May 2025, limits the growth in local property tax collections by placing a 3 percent cap on annual property tax revenue increases. This law also raises the state’s homestead property tax credit from $500 to $1,600 and increases the property tax credit for disabled veterans and surviving spouses from $8,100 to $9,000. These changes are retroactively effective for the 2025 tax year.
Utah Tax Changes Retroactively Effective January 1, 2025
House Bill 106, enacted in March 2025, trims the individual income tax rate from 4.55 to 4.5 percent and expands the child tax credit to children up to the age of five. It also creates a new nonrefundable tax credit for employer-provided childcare expenditures.
Vermont Tax Changes Retroactively Effective January 1, 2025
House Bill 493, enacted in May 2025, updates Vermont’s conformity with the Internal Revenue Code to December 31, 2024. This change is retroactively effective as of January 1, 2025.
Virginia Tax Changes Retroactively Effective January 1, 2025
House Bill 1600, the Virginia biennial budget bill that was enacted in May 2025, will provide a one-time income tax rebate fund for tax year 2024 returns, paying up to $200 per individual or $400 per joint return during FY 2026. The budget also permanently increases the standard deduction to 8,750 for individuals and 17,500 for joint filers.
Washington Tax Changes Retroactively Effective January 1, 2025
Washington instituted a graduated-rate tax on long-term capital gains as part of Senate Bill 5813, enacted in May 2025. Specifically, in addition to the existing 7 percent tax on capital gains income exceeding $270,000 (as of 2024, adjusted annually for inflation), this law imposes an additional 2.9 percent tax on capital gains exceeding $1 million, bringing the top marginal rate to 9.9 percent. The new tax is retroactively effective as of January 1, 2025.
Wyoming Tax Changes Retroactively Effective January 1, 2025
Senate Bill 69, enacted in March 2025, establishes a new homeowner property tax exemption equal to 25 percent of the fair market value of a single-family residential structure and its improved land on the first $1 million of the property’s fair market value. The exemption applies only to primary residences inhabited for at least eight months of the year, with exceptions for active-duty military personnel.
Other Notable Recent and Pending State Tax Changes
Governor Kay Ivey (R) signed House Bill 379 in May 2025, providing individual income tax filing and withholding relief to nonresidents who work in Alabama for 30 days or fewer, excluding professional athletes, professional entertainers, and public figures. This law is scheduled to take effect on October 1, 2025.
Additionally, H.B. 386, also enacted in May, reduces the state’s preferential sales tax rate on food from 3 to 2 percent beginning September 1, 2025. This law will also remove prior restrictions on localities that wish to reduce their local sales tax rates on food.
House Bill 543, which was enacted in May 2025 and takes effect on October 1, 2025, raises the tangible personal property tax de minimis exemption from $40,000 to $100,000. This law also allows local governments to adopt this same exemption.
House Bill 163, enacted in May 2025 and retroactively effective as of January 1, 2024, decouples Alabama from the Tax Cuts and Jobs Act’s amendments to IRC §174 that took effect in 2022, thereby allowing businesses to deduct research and experimental expenditures immediately instead of being required to capitalize or amortize them over a five- or 15-year period.
Additionally, effective November 1, 2025, heated tobacco products will be taxed at about half the rate that is applied to cigarettes, as a result of H.B. 357, enacted in May 2025.
House Bill 1935, enacted in April 2025, establishes a modernization and automation tax credit for businesses equal to 5 percent of eligible project costs, capped at a maximum credit amount of $2 million, for in-state businesses that invest at least $25 million in qualifying modernization or automation projects. This law, which takes effect October 1, 2025, allows unused credit amounts to be carried forward for up to five years.
House Bill 25-1005, enacted in April 2025, creates a refundable income tax credit for global film festivals commencing relocation to Colorado by January 1, 2026, with a maximum credit amount of $34 million. The law will take effect in August 2025, 90 days after the adjournment of the Colorado General Assembly.
Taxes on cigarettes and other tobacco products will adjust automatically on October 1, 2025, but the new rates have not yet been published.
House Bill 112, enacted in April 2025, provides a one-time individual income tax rebate to taxpayers who filed individual income tax returns for the 2023 and 2024 tax years. The credit amount provided equals $250 for single filers, $375 for head of household filers, and $500 for joint filers, or the taxpayer’s 2023 income tax liability, whichever is less. This law took effect April 15, 2025, and Gov. Brian Kemp (R) announced in early June that the state would begin issuing these refunds to eligible taxpayers.
House Bill 1601, enacted in May 2025, expands Indiana’s sales and use tax exemption for data centers to include quantum computing, advanced computing, and defense infrastructure projects that meet certain minimum qualified investment requirements. This law also allows counties and municipalities to enter into agreements to offer property tax exemptions to these projects. This law took effect on May 1, 2025.
House Bill 606, enacted in April 2025, will take effect in late June. This law will allow counties to create joint taxing districts for large economic development projects, with those districts authorized to levy an occupational tax and a property tax.
Additionally, H.B. 2, enacted in March 2025, retroactively exempts bullion from Kentucky’s sales tax as of August 1, 2024, and allows anyone who paid Kentucky sales taxes on bullion to sue the Commonwealth and, if successful, receive a refund for sales taxes paid, in addition to other financial relief.
Senate Bill 232, enacted in June, revises and simplifies the motion picture production tax credit program, replacing a tiered credit system with a new 40 percent tax credit for projects approved on or after July 1, 2025.
Missouri Amendment 2 was approved by voters in November of 2024, legalizing sports betting in the state, and levying a 10 percent wagering tax. While a dispute over the use of emergency rules has delayed the change, the constitutional deadline for implementation is December 1, 2025.
Oklahoma SB 638, enacted in May 2025, removes the mandatory markup of 6 percent on the cost to the retailer of groceries, gasoline, and other goods purchased at wholesale. This markup was previously presented as the “cost of doing business.” The change will take effect on November 1, 2025.
Starting October 1, 2025, Washington will apply its sales tax to certain services, including digital advertising services, IT services, and other business-to-business transactions. As a result, Washington businesses that purchase such services will be subject to a hefty tax on these transactions, creating an incentive for businesses to move their primary location out of state. This change is the result of S.B. 5814, enacted in May 2025.
Washington will also increase various Business and Occupation (B&O) taxes on October 1, 2025, as a result of H.B. 2081, enacted in May 2025. Specifically, for businesses that fall within the “service and other activities” classification, the tax rate will increase from 1.75 to 2.1 percent, and the rate on specified financial institutions will increase from 1.2 to 1.5 percent.
Additionally, Washington now imposes an excise tax on the sale by car manufacturers of EV tax credits to other companies. This change took effect May 20, 2025, and is the result of H.B. 2077.
House Bill 1498 levies an additional $100 fee on marriage licenses to fund a new domestic violence co-responder account. Senate Bill 5786 increases various liquor license and permit costs by 50 percent. Finally, Senate Bill 5284 creates a new EPR program, known as the Solid Waste Producer Responsibility program. All three bills were adopted in May and take effect July 27, 2025, though most of the EPR program’s implementation dates are set for 2026 and beyond.
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